Whether the calls are annoying, abusive, or downright crooked, you can stop cold callers. The law protects you by requiring cold callers to follow several rules. But you need to take steps to take advantage of these rules and to protect yourself. This brochure tells you about your legal rights, how to deal with cold calls, how to stop them, and how to evaluate any investment opportunity that comes your way over the telephone.

High-Pressure Sales Tactics
Aggressive cold callers speak from persuasive scripts that include retorts for your every objection. As long as you stay on the phone, they'll keep trying to sell. And they won't let you get a word in edgewise. You'd hammer them. I always remember this one guy, I mean, I just stayed on the phone for almost an hour, and he finally bought.
- A boiler room broker

Beware of brokers who pressure you to buy before you have a chance to think about - or investigate - the opportunity. Stop right there! You're a businessman and you make decisions every day. You didn't get where you are by being stupid . . . Let's confirm the order now. OK?
- A cold calling script

Watch out for dishonest brokers who tell you about a once-in-a-lifetime opportunity, especially when the caller bases the recommendation on inside or confidential information. My broker said the company was in the process of buying this 100,000 watt radio station . . . The information wasn't on the street yet, but once the information did go out, the stock was going to double or triple.
- An investor in Virginia

Don't fall for brokers who promise spectacular profits or guaranteed returns. If the deal sounds too good to be true, then it probably is. My broker was speaking of the AIDS epidemic and how much work was going into it with the laboratories and so on. And this particular company, working so close with it . . . he said the stock would go through the roof. And he said it was absolutely a sure thing . . . It would just continue to rise. Maybe as high as $20 or $30 per share.
- An investor who lost $70,000 while his broker made over $15,000 in commissions

Don't deal with brokers who refuse to send you written information about the investment. I asked the broker not once but three times to send me some information. Ed McMahon's been sending you information for years; he hasn't made you any money,' was his reply.
- A reporter for the Washington Post

Bait and Switch
Dishonest brokers lure new customers by encouraging them to purchase well known, widely traded blue chip stocks. After you take the bait, they may pressure you to invest in small, unknown companies with little or no earnings. These stocks tend to be very risky and thinly traded, leaving more investors with losses than profits.

Paying Too Much
Although they may not say so, dishonest brokers who push you to invest in a small, unknown company often work for firms that own large amounts of the stock. Their firm may have been involved in the company's initial public offering. Or the firm may make a market in the stock, which means it buys and sells the stock - sometimes called a house stock- for its own account. If only one firm or a small group of firms makes a market in the stock, the price can be manipulated and may not reflect the true value of the company. Dishonest brokers often pump up the prices of their house stocks until they get rid of their own holdings at high prices. But when they stop promoting the stock, the price falls, and investors lose their money.

If you're not careful, you may pay too much for house stocks. Some dishonest brokers overcharge their customers by adding an undisclosed mark-up to the price the firm paid for the stock. Although it's illegal for brokers to charge excessive mark-ups, some dishonest brokers mark up the prices of the stocks they sell by as much as 100% or more.

Portrait of a Boiler Room
The SEC and state securities regulators have investigated - and taken action against - numerous firms and brokers who use high-pressure tactics to sell securities. In a recent case, boiler rooms were described this way: The firm was operating a classic boiler room. The brokers sat cheek by jowl in a room the size of a basketball court. All of their desks were lined up side by side in rows. The firm held mandatory sales meetings every morning at 8:30 a.m. at which time sales techniques were demonstrated and scripts for the firm's house stock . . . were distributed. Brokers were expected to follow the scripts and only give customers the information they contained. Brokers were discouraged from doing any outside research, and were told to rely on the firm's research and representations. . . . After the morning sales meeting, brokers were expected to spend the entire day (except for a lunch break) on the telephone. The firm expected a high volume of sales, and if brokers did not stay on the phone, they were fired. . . .One broker conceded that he falsely identified another salesman . . . as the firm's research analyst, and gave a fictitious description of the purported analyst as fat, bald, and badly dressed. He stated that the reason for the firm's policy of discouraging customer sales was its desire to avoid negative price pressure on house stocks, a circumstance that he did not disclose to customers.

Brokers in one boiler room defrauded investors by:
… lying about the firm's reputation and expertise, claiming it had a research department that analyzed stocks when it didn't,
… refusing to say anything negative about the stocks they pushed, including the risk factors discussed in the prospectus,
… making baseless price predictions, promising that certain stocks would double in price within a short time period,
… impersonating other salespeople at the firm, and discouraging customers from selling the stocks they recommended without regard to the customers' best interests.

Knowing how boiler rooms operate, you should be extremely skeptical when considering any investment opportunity a stranger tries to sell over the phone.

What Can I Do? When cold callers use harassing, abusive sales tactics and lie to you about investment opportunities, they violate the cold calling rules and break federal and state securities laws. Don't let them off the hook! To complain about abusive cold callers, write down the name of the caller, the name of the firm, the date and time of the call or calls, what the caller said to you, and what you said to the caller. You can send your complaint to either the SEC or your state's securities regulator.

U. S. Securities and Exchange Commission
Office of Investor Education and Assistance
Mail Stop 2-13
450 Fifth Street, N.W.
Washington, D.C. 20549

Phone: (202) 942-7040
Fax: (202) 942-9634
E-mail: help@sec.gov